The term “trustee” comes up in different real estate contexts, and it’s important to understand which type is involved in a given transaction. Whether the trustee is managing a family trust or holding title as part of a loan, trustee duties vary depending on the role and carry specific legal responsibilities that affect ownership and liability.
Types of Trustees in California
In California, “trustee” can refer to two different roles depending on the transaction.
Living Trust Trustee
This trustee manages real estate held in a family trust. The property owner, known as the settlor or trustor, transfers the property into trust, often to avoid probate. The trustee holds legal title and must manage the property according to the terms of the trust document and the California Probate Code.
Deed of Trust Trustee
This trustee acts as a neutral third party in a loan transaction. California uses Deeds of Trust rather than traditional mortgages, which involve three parties: the borrower (trustor), the lender (beneficiary), and the trustee. The trustee holds legal title only as security for the loan, not as an active manager of the property.
Trustee Duties of a Living Trust Trustee
When a living trust buys or sells real estate, the trustee acts as a fiduciary and must follow specific legal obligations under the California Probate Code. These trustee duties are designed to protect the interests of the beneficiaries throughout the transaction.
Duty of loyalty: Under Probate Code Section 16002, the trustee must act only in the interest of the beneficiaries. Selling trust property to themselves, a family member, or their own business at a reduced price is considered self-dealing and is not allowed.
Duty of care: The trustee must manage and protect the property responsibly, including maintaining insurance, securing vacant properties, and collecting rental income where applicable. If selling the property, the trustee must seek fair market value, typically by working with a licensed real estate agent rather than accepting the first offer.
Duty to segregate assets: Under Probate Code Section 16009, trust property and funds must be kept separate from the trustee’s personal assets. Sale proceeds must go through escrow and then into a dedicated trust account.
Duty to inform and account: Beneficiaries must be kept informed about the transaction and given proper notice before a sale. After closing, the trustee must provide a written accounting of proceeds, fees, and any tax deductions.
Trustee Duties of a Deed of Trust Trustee
Unlike a living trust trustee, the trustee duties of a Deed of Trust trustee are more limited and only become active under two specific circumstances.
When a Loan Is Paid Off
Once the borrower fully repays the loan, the lender sends the trustee a Request for Full Reconveyance. The trustee then records a Deed of Reconveyance with the County Recorder, which releases the lender’s lien and returns clear title to the property owner.
When a Loan Goes Into Default
California primarily uses a nonjudicial foreclosure process under Civil Code Section 2924, meaning foreclosure happens without court involvement. During this process, the trustee’s responsibilities include:
- Recording a Notice of Default to formally begin the process and notify the borrower of the amount owed.
- Managing the 90-day reinstatement period, during which the borrower can cure the default by paying the past-due amount.
- Recording and posting a Notice of Trustee Sale if the default is not cured. The notice must be posted on the property, published in a local newspaper, and recorded with the county at least 20 days before the auction.
- Conducting the public auction and issuing a Trustee’s Deed Upon Sale to the winning bidder, which transfers title and ends the borrower’s ownership.
Understanding these trustee duties helps borrowers, lenders, and real estate professionals navigate California foreclosure procedures more confidently.
FAQs
Can a trustee sell property without beneficiary approval?
Yes, if the trust document gives the trustee explicit authority to sell. However, the trustee is still required to notify beneficiaries and act in their best interest.
What happens if a trustee fails to perform their duties?
Beneficiaries can file a petition in probate court. A judge can remove the trustee, void the sale, and hold the trustee personally liable for damages.
Who selects the trustee in a financing transaction?
The lender typically chooses the trustee, often a title company or foreclosure service provider, when preparing the Deed of Trust. The lender can later replace the trustee by recording a Substitution of Trustee.
Is a trustee personally responsible for the mortgage on trust property?
No. The trustee signs documents in their capacity as trustee, not personally. The trust’s assets secure the loan, so the lender cannot pursue the trustee’s personal assets in a standard default.
Disclaimer: This blog is for general informational and educational purposes only and does not constitute legal, tax, financial, or professional advice. Readers should consult their own qualified attorney, CPA, financial advisor, or other professionals before making any decisions. Nesi Title and Escrow Company makes no warranties and assumes no liability for reliance on this content.
Need guidance on escrow and title services in California? Contact NESI to help keep your real estate transactions smooth from escrow to closing.
